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Sprint Grabs Virgin Mobile to Bolster Prepaid Market Share

In a deal valued at $483 million, Sprint Nextel will add Virgin Mobile in what is likely to be a continuing consolidation trend in the prepaid market. Sprint's Boost and new Virgin Mobile will be competing in a crowded market that already includes Leap Wireless, Tracfone and MetroPCS.

The consolidation pace in the prepaid wireless market stepped up July 28 with Sprint Nextel announcing a $483 million deal to acquire Virgin Mobile USA. Under the terms of the agreement, Virgin Mobile USA stockholders will receive shares of Sprint common stock based on a 10-day average closing price equivalent to $5.50 per Virgin Mobile USA share.

At closing, Sprint will retire all of Virgin Mobile USA's outstanding debt, which is currently $248 million net of cash and cash equivalents as of March 31, but is expected to be no more than $205 million net of cash and cash equivalents on Sept. 30, 2009.The transaction is subject to various closing conditions, including the approval by Virgin Mobile USA's stockholders and applicable regulatory approvals."The acquisition of Virgin Mobile USA positions Sprint for even greater success in the prepaid wireless segment," Sprint Nextel President and CEO Dan Hesse said in a statement. "Prepaid is growing at an unprecedented rate with consumers keenly focused on value. Virgin Mobile is an iconic brand in the marketplace that will complement our Boost Mobile brand."With more than 90 percent of Americans already armed with cell phones, major carriers are increasingly looking to prepaid carriers as a source of new subscribers. Virgin Mobile, Boost, Leap Wireless, Tracfone and MetroPCS are all competing in the crowded market. In June, Tracfone began selling unlimited calling and texting for $45 per month using Verizon Wireless' network.Bringing together Boost and Virgin Mobile under one brand, Sprint said, allows the carrier to offer two different prepaid services, each with a distinctive offer, style and appeal to different customer demographics.Following the closing of the deal, Sprint's prepaid business will be led by current Virgin Mobile USA CEO Dan Schulman, who will report directly to Hesse. Schulman will be responsible for the business strategy and growth of the prepaid segment, while Matt Carter will continue to lead Boost Mobile and will report to Schulman."Virgin Mobile USA redefined the U.S. prepaid segment when we launched seven years ago," said Schulman. "Sprint is committed to growing its prepaid business, and this transaction will provide us with the resources and opportunities to compete more aggressively, and strengthen our position in prepaid."

Virgin Mobile USA will continue to license the Virgin Mobile USA brand from the Virgin Group under the terms of an amended and restated Trademark License Agreement. Sprint will pay $12.7 million for the initial term, which will continue through the end of 2021. The agreement contains several renewal provisions that will allow Virgin Mobile USA to extend the term until 2047.